Expansion in Australian house building amid construction sector decline

Despite nine months of consecutive expansion in house building and improvements in apartment construction, the national construction industry in Australia remained in negative territory in May 2014. The latest Australian Industry Group/Housing Industry Association Australian Performance of Construction Index (Australian PCI?) stood at 46.7 during the month, increasing by 0.8 points compared to the figure recorded in April but remaining below the 50 point expansion level.

While house building totalled 54.4 and apartment building increased by 7 points to 64.9, commercial construction contracted at 49.7 and engineering construction fell to 34.8. There were reductions in the rate of contraction in employment (up 3.8 to 47.1) and deliveries (up 3.1 to 47.0); however, wages (59.1) and input prices (66.1) remained high. Reflecting the highly competitive environment, selling prices remained in negative territory at 48.8 points. The construction activity sub-index was 47 points, which was 1.2 points below the level in April. The new orders sub-index was slightly weaker at 45.9 points.

Peter Burn, Australian Industry Group Director – Public Policy, said: "The rebalancing of the construction sector is gathering pace with a further decline in engineering construction in May, partially offset by healthy expansions in house and apartment building. Encouragingly, new orders in these residential sub sectors are also on the rise, although the easing of residential building approvals in recent months may temper medium-term expectations. Commercial construction on the other hand is struggling to sustain momentum after some promising signs earlier in the year. The sector was still shy of growth in May and new orders for commercial construction work fell. Engineering construction continued its drop in the wake of the mining-investment boom leaving plenty of capacity for an expansion of other infrastructure activity."

Harley Dale, Housing Industry Association Chief Economist, also commented on the data: "We can take some heart from the latest Australian PCI? results. A contraction in engineering construction is hardly surprising, but commercial construction is very close to expansion mode, house building continues to expand, and apartments posted their best result in seven months. Further growth in residential construction activity in 2014 will be important for the Australian economy given the positive flow-through such expansion has to segments of Australia’s manufacturing, supplier and retailing sectors. The Australian PCI? indicates we will get this outcome. It would be pleasing to see evidence emerge of growth in commercial construction and upcoming Australian PCI? updates will provide a handy early news lead in this regard.”